Philly Fed Index Components Improve Markedly in May

According to the Philly Fed Bank, the Philadelphia Fed Index data showed business worsened for the eighth straight month in May for manufacturers in the region. The pace of deterioration however, was slower than at any time since September ’08, an indication that declines are moderating in the region’s manufacturing sector.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from ‐24.4 in April to ‐22.6 this month. Although an indication of continued overall decline, this reading is the index’s highest since last September; it has now edged higher for three consecutive months. Still, the index has been negative for 17 of the past 18 months, a span that corresponds to the current recession.

The new orders index remained negative this month and was the only broad indicator that did not show improvement (it declined two points). The survey’s shipments index, however, rose 17 points, increasing from its record low reading of ‐35.7 in April to ‐19.0. The survey’s current inventory index improved for the second consecutive month, increasing 12 points (the index is now 27 points above its record low reading in March).
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Broad indicators of future activity showed improvement again this month. The future general activity index remained positive for the fifth consecutive month and increased 11 points, from 36.2 in April to 47.5. The index has now increased 33 points in the past two months.

While most of the components of the Philly Fed index remain negative there is evidence declines are moderating. Most broad indicators improved markedly again this month, suggesting that an increasing number of the region’s manufacturing executives expect a recovery in business activity before the end of the year.